Whistleblower on Ky Pensions "I Think We're Going to Be 'The Walking Dead' for a Long Time"

AMC’s hit zombie-apocalypse-drama ‘The Walking Dead’ is a story about a shambling mass of the undead that brings civilization to its knees. Chris Tobe, ​a former trustee of the Kentucky Retirement Systems turned whistleblower, says the show is an apt metaphor for what will happen if lawmakers don't get serious about funding pensions.

“I think we’re going to be The Walking Dead for a long time" said Tobe. "We’re all gonna keep saying, ‘oh, we’re just fine,’ and we’re gonna be ‘The Walking Dead’ for a long, long time.

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Kentucky Governor Steve Beshear’s $20 billion budget includes nearly $190 million for K through 12 education, even at the expense of cuts to many other state agencies. And part of that funding for education is coming at the expense of the Kentucky Teachers Retirement System. The pension’s unfunded liability could bring about dire financial straits for the commonwealth.

Tobe has over 30 years of public and private experience in financial investments, and he's a private consultant for pension funds elsewhere.

He says that for over a decade, legislators and governors from both parties have underfunded the Kentucky Employee Retirement System, or KERS, which provides pensions to state employees.

Currently, there's only enough money in the fund to pay about a quarter of the liability, which is what it will need to pay out in benefits.

Tobe says it's one of the worst in the nation.

"It’s, uh, yeah. We have a couple zomb-- we have one pension, the KERS is definitely a zombie pension," said Tobe.

But all those retirement bills don't have to come due for this to cause trouble. Tobe says the pension issues are likely behind the state's credit rating downgrade. Now, when bonds are issued to pay for construction, the interest rate on the debt is higher.

It's not that lawmakers are unaware. Last year, they passed a measure requiring $100 million to go toward KERS. But Tobe says that's only slowing the decay.

“Basically, the deficit’s been like a billion a year, and then you know when the governor comes forth and says, well, I’ve got another $100 million for pensions, that doesn’t mean it’s a hundred million: It means we’re only going under 900,000 instead of a billion a year," said Tobe.

It's not just a problem with the KERS. Kentucky has two other large pension funds, one for teachers and one for county employees.

Gary Harbin is head of the teachers retirement system. He told lawmakers in September the pension will need far more than lawmakers are allocating.

“This is our projections for what we need into the pension plan for the next biennium: $390 million in the first year, and $400 million in the second year," said Harbin.

The situation is dire enough that Harbin told lawmakers he is considering selling state land to shore up the fund.

But while it did restore funding to schools, Beshear’s budget proposal passed on teacher's retirements, effectively kicking the can down the road, and directly at the next governor.

When asked why, Beshear said, simply:

“Where’s the money gonna come from? [laughs] You know, the short answer is we don’t have any extra money to infuse into that system.”

Beshear's office says the governor’s budget does include language to address the issue, just not any time soon.

“The language expresses our intent to create that mechanism that will eventually start putting money in there," Beshear explains. "But, uh, in all honesty, over the next two years, there is no money created with that intent to put into the system.”

Aside from not addressing pensions beyond a $100 million commitment to KERS, Beshear's budget doesn't count on the state generating any new revenue to go toward pensions or any other programs. No tax reform. No expanded gambling. Tobe says it'll take that, or a federal bailout, to fully fund pensions. But none of those options are very popular. Neither is the pension topic.

“People don’t believe you when you say you need money because they felt they’ve been lied to for so long," said Tobe. "So there is a whole cultural thing there that I think we need to at least get started on trying to get honest with people about what the situation is. And maybe the next governor probably might be doing that. Because, I mean, he is starting in a very big hole."

And now, as both chambers of the General Assembly gear up for closed-door budget talks, they may consider adding revenue or addressing pensions again, but Tobe says it’s more likely you’ll run into a zombie first.

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"It would probably be more of a number like seven to eight-hundred million, some would argue larger than that," says Stumbo. "It just depends upon how big a bite of the apple you want to take, but I don't think we can do that."

Stumbo says that it’s unlikely the state will have that money until Kentucky fully recovers from the 2008 recession. But, it’s coming.

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